Motorco Corporation plans to acquire several retail automotive parts stores as part of its expansion program. Motorco carries out extensive review of possible acquisitions prior to making any decision to approach a specific company. Projections of future financial performance are one of the aspects of such a review. One form of projection relies heavily on using past performance (normally 10 prior years) to estimate future performance.
Currently, Motorco is conducting a preacquisition review of Alpha Auto Parts, a regional chain of retail automotive parts stores. Among the financial data to be projected for Alpha are the future rental costs for its stores. The following schedule presents the rent and revenues (in millions of dollars) for the past 10 years:

Required:
(1) Discuss the advantages and disadvantages of each of the three alternative methods for estimating the rental expense for Alpha Auto Parts.
(2) Identify one method from alternatives A, B, or C that Motorco should use to estimate rental expense and explain why that alternative is preferred.
(3) Explain whether a statistical technique is an appropriate method in this situation for estimating rental expense.

Transcribed Image Text:

Annual Rent Expense $1.00 1.15 1.40 1.10 1.55 1.25 1.65 1.60 1.80 1,95 Revenues 20B 24 36 27 43 20H 0J.nu 45 48 61 60